Sumatec - The classic pump & dump

Chart : Sumatec daily chart as of Oct 15 2014 (Source: ChartNexus)

Chart : FBMKLCI daily chart as of Oct 15 2014 (Source: ChartNexus)

The selling down of the past 2 weeks has caused the KLCI broke its 3 years uptrend line. The market has been running for last 3 years without any correction so I believe the Bull is tired and current weakness could just be a healthy correction which is in line with the world market. 1700 will be a critical support if it breaks then Bear may start to creep in. 

But the same can't be said for certain penny stocks. Sumatec, the darling of the market, has seen breaking every level of support and almost reach the level before it spike. It is quite a classic pump and dump example. During the run up of the share price, there were a lot of 'good news', exciting corporate exercises, rumours and 'great prospect' flying around. These days forums, blogs, twitters and facebooks are all good platform for the promoter to spread the good news and how good is the prospect of the stock. With 'target price' of RM1, RM 10 and RM 20 couple with well known public figure as well as asset injection, it is quite enticing to retail investors. One might not believed it at first but when the share price keep going up,it is very hard to see yourself missing the boat.

The Aug 20 plunge of the stock price from over 60 sen to 40 sen was the end of the run for the counter. But the promoter was more careful when distributing their shares on the following weeks till today. The counter only closed one or two sen down most of the days with occasional rebound so there will be no panic from retail investors and they can keep distributing their shares orderly. At 40+ sen, there were a lot of investors that stuck with the high price went to average down and a lot of investors that miss the first run went into the stock as it deems 'cheap' at the time. I believe the promoter distributed most of their shares in this range as selling at the top is never their intention but distributing shares at the price that people are willing to support is what they are hoping for. 

So what now? Some may still want to believe that it is just weak market sentiment and the share price will rebound to 60 sen or more. But deep down we know that when a stock doubled its share price in 2 months time and back to square one in the following 2 months then it most likely a classic pump and dump case just like the what happen to INGENCO, MTRONIC, NICORP, AGLOBAL (now rename as NEXTNAT) and PATIMAS (if you still remember this now delisted stock). For those who think that TSHS won't let his share just die like that, just like I mentioned in my previous post : Sumatec - What is the end game of TSHS? , I think the share price is nothing of his concern as he already cash out with the injection of his oil field. As for the RI, I believe we all know that the odd of it going through is pretty slim now.

Will the share price rebound to 60 sen or higher? Ya, everything is possible in this world but I think even 40 sen is quite a distance let alone 60 sen and above. Why? Because a lot of investors that get stuck with high price are looking to cut their losses at the first chance they have so there will be quite a selling pressure when the stock rebound. So God bless those still holding the baby!

GBH - Getting no where!

Chart : GBH daily chart as of Aug 2 2014 (source: ChartNexus)

Goh Ban Huat (GBH) on July 2 announced 3 corporate proposals that includes Share Sale Agreement (SSA), Reverse Take Over (RTO) and disposal of prime land asset. 

Under the SSA, its wholly owned subsidiary, EKSPRESI TEPAT SDN BHD (ETSB) would acquire 35% equity or 3.5 Million shares of GLOBALMARINER OFFSHORE SERVICES SDN BHD (GMOS) for RM 38 Million. GMOS is an O&G company that specialize in floating production storage offload (FPSO) thus the acquisition would path the way for GBH to venture into O&G industry.

Besides the SSA, the company also entered into a Memorandum of Agreement (MOA) with DATO’ ABDUL RAHMAN BIN MOHAMED SHARIFF and  NORMALA MOHD SHARIF (Vendors) for the acquisition of the entire issued and paid up share capital of Dynac Sdn Bhd (Dynac is one of the vendor under the SSA). The MOA is basically a RTO exercise where GBH would acquire Dynac for the sum of RM 632 Million which would be satisfied by RM 210 Million cash and issuance of new GBH shares and then the Vendors would made an MGO for the rest of GBH shares for no less than RM 2 per share.

The 3rd proposal is for the disposal of the company most valuable asset, 13.93 acres of prime land, to Keladi Maju Bhd for RM 192.37 Million.

The share price of the company spiked from around RM 1.90 to RM 2.20 and peaked at RM 2.50 after the announcement. This could be due to the arbitrage opportunity that investors saw since the MGO will be made above RM 2 a share. Even some of the initial shareholders might not sold their shares after the run of the share price to wait for better offer.

But on Sep 30 the company suddenly announced that both SSA and RTO were terminated at the request of the vendors without any reason given by the vendors. It is quite surprising as personally I do think that the RTO is more 'creditable' than other diversification proposals such as PDZ and CNASIA. It again shows that MOU, MOA or any framework agreement is just a proposal and nothing  is concrete until the deal is done. Whoever jump into the counter for the arbitrage opportunity is certainly trap by now. The share price has seen falloff the cliff to trade close to RM 1.70 .   

So what is left for GBH now? Basically the company fail to venture into O&G and in the process lost their most precious land to Keladi. The only thing left is the unattractive ceramic and toiletries business and a bunch of cash.  After the disposal of the land, GBH will have some RM 237 Million cash or RM 1.275 per share without any borrowing. Of course, Tan Sri Robert Tan still here to stay and he did mentioned that the company will keep looking for new assets to be injected into the company. With a clean balance sheet, the company is indeed a good candidate for any RTO deal. Until then, the current price of the counter seems quite expensive even with the potential of capital distribution.